2015 was a record setting year in Toronto real estate. 101,299 listings were sold in the GTA - 9.2% more than in 2014. Average price of all property types increased by 9.8%, to $622,217.
As we saw in 2014, a shortage of listings, especially in the low rise category, caused competition between prospective buyers and bidding wars. In the City of Toronto 10,781 listings were sold above asking price - that's 27.8% of all listings sold. 8,469 (or 46.8%) of these sales above listing price were of freehold houses. 11.2% of condo sales also received more than the listing price.
56 listings in the City of Toronto sold for more than 140% of the asking price. The highest percentage received for a house - 163% - was paid in April for a detached home in Seaton Village. There was one sale at 313% of listing price of a vacant land at Eglinton and Mount Pleasant. One condo listing also sold for 140% of asking, getting $805,000 above the asking price of $1,995,000.
New rules are in place now to prevent a possible abuse of the hot market by unscrupulous individuals. The owners must decide, before the listing is posted, whether or not they are willing to entertain a preemptive offer, and that decision must be clearly stated on the listing. And the listing brokerage must keep on file all registered offers, either as a copy of the offer or a signed Offer Summary Document.
In December in the City of Toronto the average price of a detached house was $1,039,638, of a semi-detached was $743,738, and of a townhouse was $502,648. Condo apartments sold, on average, for $400,088, and condo townhouses for $477,628.
Several factors affect our real estate market.
The interest rates have now been very low for a number of years, keeping the real cost of purchasing a house, townhouse, condo apartment or loft reasonable, at least for the length of the mortgage term.
Change in mortgage lending rules in the recent past reduced the amount of loan for which the first time buyers with low down payment would qualify. Most recently introduced change requires a down payment of 10% for the amount of mortgage over $500,000. Buyers need to have 5% down for the first $500,000 and additional 10% of the loan sum above that amount.
Properties selling for over 1 million no longer qualify for government insured mortgage.
Young people, immigrants, and foreign investors are still fueling the demand, while older generation stays longer in their homes.
The province imposed a freeze on urban boundary expansions, which means that land prices are bound to increase. Increased land values lead to an increase in property prices. Increases in single family development charges in the City of Toronto will increase the cost of newly constructed housing, which is already suffering from the higher materials and energy costs. New Toronto Land Transfer Tax was introduced in 2009, and Harmonized Sales Tax came into effect in July of 2012. The later does not have a great impact on purchases of resale homes, other than adding to the closing costs, but will be felt by buyers of new construction.
Using average house prices on record since 1953, corrected for inflation (for comparison purposes we brought the historical data up to today's equivalent values), I produced the following graph. The average prices are courtesy of TREB.
On the graph below you will see three 'spikes' in house prices, and three 'dips'. Red line denotes the trend. In 1974 and 1989, when the average prices rose steeply above the trend line, a 'correction' ensued. We can also see a small correction as a result of late 2008 and early 2009 market conditions. The rate of price gains since 2008 is a bit lower that the one which led to the 1974 correction and to the 'bubble burst' of 1989. Each correction led to a period of stable prices, especially when these prices were corrected for inflation. The most recent rise in prices is not as steep as the increases prior to 1974 and 1989 'corrections'.
At the beginning of 2006, when the average house price reached $333,852 (which, corrected for inflation, amounts to $388,720), the price line has crossed over the trend line. But the increase rate was moderate. The brief correction which happened in 2007 - 2008 was more of leveling off the prices, similar to the period between 1957 and 1960. After that brief correction the prices continued to rise, and the increases were quite substantial since 2010. These increases, however, are still not as steep as those of the period between 1985 and 1989.
When the prices rise faster than the trend suggests, the market eventually slows down. Whether the prices become stable, following the trend line, or actually drop, seems to depend on the speed with which the price increases happen. The steeper the angle of the curve representing house prices, the more likely is a price 'correction'.
While the recent rise in real estate prices in Toronto is quite significant, the year-over-year changes in prices (not corrected for inflation) have lately been much more moderate than in previous years (see graph below). You will also notice that the largest single decrease in price was approximately 8%, while the largest increase (in 1987) was around 36%.